Shares in Chinese electric vehicle manufacturer NIO Inc (NYSE: NIO) – which some people call the ‘Tesla of China’ – are having an amazing run in 2020. Year to date, the stock is up an incredible 1,200%+.
Since I last covered NIO stock, on 9 November, there have been a number of developments (some good and some not so good). With that in mind, here are three things UK investors should know about this exciting technology stock right now.
NIO stock: incredible revenue growth
NIO posted its third-quarter results on 17 November and the numbers were very impressive.
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For the quarter, total revenues were RMB4,526m (US$667m). This represented an increase of 146.4% on revenues in the third quarter of 2019 and an increase of 21.7% on revenues in the second quarter of 2020.
Meanwhile, the company delivered 12,206 vehicles for the quarter (8,660 ES6s, 3,530 ES8s, and 16 EC6s). This was well up on the 4,799 vehicles delivered in the third quarter of 2019 and the 10,331 vehicles delivered in the second quarter of 2020.
It’s worth pointing out that NIO did generate a large loss of RMB1,047m ($154m) for the quarter. However, this was much smaller than the loss of RMB2,522m it generated in the same period last year.
Looking ahead, NIO looks set to continue growing at a phenomenal rate.
For the fourth quarter, the company expects to deliver between 16,500 and 17,000 vehicles. That would represent an increase of 101% to 107% on the number of vehicles delivered in Q4 2019.
It expects revenues for Q4 to be between RMB6,259m ($922m) and RMB6,439m ($948m). That would represent an increase of approximately 120% to 126% on revenues in Q4 2019, and an increase of approximately 38% to 42% on revenues in Q3 2020.
Source: NIO Inc
New battery technology
Another positive here is that NIO has recently launched a new 100kWh battery. This battery – which has realised 37% higher energy density than its 70kWh battery – is underpinned by technological advancements including a thermal propagation prevention design, all-climate thermal management, and a bi-directional cloud battery management system.
Powered by the 100kWh battery, the New European Driving Cycle (NEDC) range of the NIO EC6 can be up to 615kms. That’s impressive, although NEDC is known for not being very accurate. Tesla recently announced that its Model 3 cars produced in China have an NEDC range of 635kms.
Short sellers are targeting NIO
It’s not all positive news, however. As a result of NIO’s recent share price rise (it’s up 75% this month), the valuation now looks very high. Its market cap is now $73bn and its price-to-sales (PS) ratio stands at about 30. Tesla, by contrast, has a PS ratio of 18.
It’s worth noting that short interest on NIO stock remains substantial. Currently, around 60m shares are on loan. There are 1,185m shares in issue. That means short interest is about 5.1%, which is significant. Clearly, some hedge funds expect NIO’s share price to fall.
Given the high valuation and attention from short sellers, I think caution is warranted towards NIO stock right now. In my view, there are safer growth stocks to buy.
